Insurance Facts

The Government has decided it is time to try to encourage more individuals to start saving toward a private pension. Their latest measure is the National Employment Savings Trust (NEST) and is set for implementation from 2012.

NEST is intended to encourage both a larger level of saving for old age and open up access to saving for individuals who don’t presently have a acceptable office pension scheme. Consequently, from 2012, all eligible employees will begin to be automatically enrolled into NEST unless an appropriate office scheme exists to take its place.

For companies, this creates a lot of issues. First, and perhaps most importantly, NEST or its employer alternative MUST be part funded by the employer with a contribution of 3% of eligible earnings. This could be added to a 4% contribution from the employee and another 1% from the Govt. (through tax subsidies), making a sum total of 8%. The aim, essentially, is to encourage a savings culture, especially amongst low-to-moderate income earners, and will affect those aged from just 22 right up to state-pensionable age. These are earners who in the past have either not had simple access to independent savings or have simply opted not to take part.

Hence, the cost of having to fund such workers is most likely to increase costs for nearly all businesses. There is also the question of whether to keep going with – or set up – a workplace pension scheme as an alternative. For companies whose workforce is made from the higher paid, or who consider the incentive of an in-house arrangement key to their benefits package, the rigidity of NEST may not offer the flexibility they need. Some may thus consider that either opening, extending or simply increasing the money for an existing employer scheme is something they should sort out in advance. There may even be contractual issues to consider with existing staff.

One benefit that we all need to be aware of when considering a pension is that after you reach age 55 you’re able to take up to 25% of your complete pension amount as an early pension release. This sum is tax free and whilst taking this sum will have an effect on your earnings in retirement. Understanding that you can receive a lump sum such as this later on , would certainly be an incentive to start saving for retirement whether this is via an employer’s scheme or NEST.

Info thanks to Adviser Hub. We do advise that before making any final decision with reference to your pension or taking an early pension lump sum, that you undertake a full pension review with the assistance of a certified pensions adviser.